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Where are Rs 2,000 notes slowly disappearing? If RBI is killing pink bills, it’s good news for economy

December 21, 2017
in Asia News, Business, Economy, India, Local News
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Home Asia News
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The Rs 2000 bills, which were introduced after the note ban shocker in November 2017 have always been a nightmare to the common man as it was difficult to transact using those pieces (smaller denomination notes were not available easily around to break it). After one year of demonetisation, why we don’t see too many of these pink notes around? An SBI research report may have an answer to this conundrum. According to the report authored by SBI group chief economic advisor, Soumya Kanti Ghosh, the Reserve Bank may have stopped printing the Rs 2,000 notes altogether or may be printing far less numbers focusing on smaller currencies.

First, let’s look at how did the SBI report arrive at this conclusion. It first cites the information given by the Ministry of Finance in the Lok Sabha that the Reserve Bank of India (RBI) has printed 16,957 million pieces of Rs 500 notes and 3,654 million pieces of Rs 2,000 notes as on 8 December. Total value of such notes translates into Rs 15,787 billion.

Now it takes another set of data (from RBI) which is the currency in circulation on the same date (8 December) and subtract the value of small value notes up to March, 2017 provided in the RBI annual report from it (Rs 16,825 billion-Rs 3501 billion). Thus, it arrives at the value of high denomination notes in circulation at Rs 13,324 billion as on 8 December.

ow, taking the difference of the value of total printed high denomination currency as on 8 December (Rs 15787) and the total value of high denomination notes in circulation, the SBI reports arrives at a figure of Rs 2463 billion, ‘which may have been printed by the RBI but not supplied in the market.’ According to the report, even this Rs 2,463 billion may be on the lower side.

“As a logical corollary, as 2000 denomination currency led to challenges in transactions, it thus indeed seems that RBI may have either consciously stopped printing the 2000 denomination notes/or printing in smaller numbers after initially it was printed in ample amount to normalise the liquidity situation. This also means that the share of small currency notes in total currency in circulation now may have touched 35 percent in value terms,” the report says.

One catch here is that high-vale notes also include Rs 500, not just Rs 2,000 bills. Even then it offers an indicative picture since, in value terms, the latter is more significant. Now, one must remember that after the Rs 2,000 notes came into circulation, there were reports that RBI has stopped printing or is considering pulling out these notes. A 26 July report in Mint said the RBI has stopped printing Rs 2,000 notes early this year.

From the very early stage of demonetisation, it appeared that the idea was to eventually phase out the Rs 2,000 notes. These bills were easy tools for both the government and the RBI to infuse a large amount of cash into the system within minimum time. This was necessary since after the demonetisation exercise severe cash-draught gripped all quarters of economy, paralysing the rural and informal economy in particular. It wasn’t feasible for the government mints to do this job with smaller denomination notes. Hence Rs 2,000 bills took an avatar as an easy solution. Its role is more or less done now with smaller denomination notes entering the financial system.

Will the death of the Rs 2,000 notes, if it happens, not cause much grief to the common man? Unlikely. In the months that followed the note ban, the Rs 2,000 pink notes never really helped the common citizen for daily transactions as there wasn’t enough change available (even after seven months of demonetisation, there were still reports of cash shortages in ATMs). About 90 percent of his daily transactions — purchase at retail shops, paying cabbies or small vendors — can be carried out with lower denomination notes of Rs 50, Rs 100 and Rs 200 and available coin denominations. For majority of Indians, there is hardly any use of Rs 2,000 notes in daily life. Most activities get done with lower denomination currencies. The government need not put a stop to Rs 2,000 notes in a hurry though. It can be done over a period without sending shock waves to people like in the case of the demonetisation episode.

As this writer argued in an earlier column to kill illegal cash deals, the RBI needs to make Rs 100 and Rs 200 notes (which was introduced recently) the top denominations and scrap Rs 500 and Rs 2,000 bills. This will also help society to migrate to cashless payments when it comes to high-value transactions.

Globally, most major economies have had to bring down the high denomination cash component in the system at some point to become more transparent and move to cashless transactions. Developed countries like the US, Australia and the UK have their most popular highest currency denominations at 100 or less. Most daily transactions happen there with cards. In India too, there is no logic why Rs 500, Rs 2,000 notes should continue.

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